Taiwan Dollar Gains on Optimism Bailout to Go Ahead; Bonds Fall

By Bob Chen and Yu-huay Sun

Oct. 1 (Bloomberg) -- Taiwan's dollar rose from an eight- month low on speculation the U.S. Senate will approve a $700 billion plan to rescue financial companies in the world's largest economy. Government bonds fell.

The island's currency ended four days of losses after completing its worst quarter since the 1997 Asian financial crisis yesterday after the U.S. House of Representatives voted down the bill to buy troubled assets from financial firms. Taiwan's central bank sold between $600 million and $700 million in the currency market yesterday to support the local dollar, the Economic Daily News reported today.

``The Taiwan dollar had firmed a little bit by the end of yesterday compared to its opening level, and that was generally the pattern around the region,'' said David Cohen, an economist at Action Economics in Singapore. ``After the failure to pass that package on Monday by the U.S., it really sent people running to the hills everywhere. Now there's a sense of calm returning.''

The local currency rose as much as 0.5 percent to NT$31.98 against the U.S. dollar, according to Taipei Forex Inc. It traded at NT$32.029 at the 4 p.m. close, from NT$32.13 yesterday when it touched NT$32.368, the weakest since Jan. 24.

Taiwan's benchmark Taiex index rose 0.8 percent following the largest quarterly decline in seven years after the local financial regulator banned short-selling of the island's stocks for two weeks starting today.

The Labor Pension Fund plans to invest NT$30 billion ($936 million) in the domestic stock market, the Chinese-language Economic Daily also reported today, citing unidentified people at the fund.

Bonds Fall

Ten-year bonds declined for a second day on speculation the gain in stocks deterred investors from buying debt.

``People consider the stock market to be near its bottom,'' said Tommy Huang, a bond trader at Taiwan International Securities Corp. in Taipei. ``Some are shifting money to stocks from bonds.''

The yield on the benchmark 2.125 percent bond due September 2018 rose 3.6 basis points to 2.128 percent at the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price fell 0.325, or NT$325 per NT$100,000 face amount, to 99.9719. A basis point is 0.01 percentage point.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net; Yu-huay Sun in Taipei ysun7@bloomberg.net.